American, US Airways complete merger

United Airlines loses title as world's largest airline

December 09, 2013|By Gregory Karp | Tribune staff reporter

American Airlines ring the opening bell on the Nasdaq Monday. (Nasdaq)

American Airlines parent AMR Corp. and US Airways Group officially announced their $17 billion merger Monday, creating the world’s largest airline and likely marking the end to a wave of major-carrier consolidation that has helped put U.S. airlines on more sound financial footing.

The merged airline inherits the American Airlines name and the US Airways CEO. The new American Airlines Group is instantly bigger than Chicago-based United Airlines with a global network with nearly 6,700 daily flights to more than 330 destinations in more than 50 countries and more than 100,000 employees worldwide.

Now, just four airlines -- American, United, Delta and Southwest -- control 85 percent of the U.S. market.

The merger, announced on Valentine’s Day this year, was finally consummated Monday, overcoming many hurdles including American operating in bankruptcy protection and an antitrust lawsuit by the Justice Department, which tried to stop the combination.

“American has a tremendous legacy and knows what it feels like to be the best,” said CEO Doug Parker, who had held that title at US Airways. “The new American is about getting that feeling back.”

The merged airline will maintain a hub at Chicago O’Hare International Airport, where the airlines have little overlap (American has a large presence and US Airways has a relatively small one.)

Experts have said they don’t necessarily foresee airfares rising as a result of the merger, especially in Chicago where two major airports and a number of competing airlines keep fare hikes in check.

At O’Hare on Monday, employees of American and US Airways celebrated the merger while getting to know one another. The merged airline has about 8,500 Chicago-based employees.

“We want the employees to feel they are now one,” said Franco Tedeschi, an American Airlines vice president in charge of operations at O’Hare.

Unlike other mergers, mass layoffs are not part of the plan.

“We feel very confident as we go forward with the merger that we will not displace any employees,” Tedeschi said. In fact, American this year has brought back hundreds of O’Hare-based employees since the company cut jobs following its entrance into bankruptcy protection in 2011.

After the celebrations on Monday, though, begins the tricky process of integrating two large airlines. It’s a feat that has proved problematic in other combinations, notably for United and Continental Airlines, which merged in 2010. Rampant flight delays and cancellations resulted last year after the airlines moved to a common reservation system, the technology backbone of the airline. Technology glitches and inadequate employee training on the system were blamed.

The newly combined airline is likely to use American’s reservation system, although a decision hasn’t been finalized, said Donna Paladini, a vice president at US Airways. “What we’ve learned in past mergers is it’s best to go with the larger company’s systems,” she said.

She said the combined airline will take its time to communicate with employees and customers as well as “take a look at every aspect of the airline as we put them together,” choosing the best systems and processes of each. “A lot of time and thought is going into this one,” she said.

CRT Capital, in a note to clients on Monday, was optimistic about integration. “We believe management knows from personal experience (US Airways/AmericaWest merger) and recent industry successes and failures, how to get it right,” the report said.

Unlike other mergers, unionized employee groups and management already see eye-to-eye, striking labor deals before the merger even happened. That’s important, Tedeschi said. “Labor is huge,” he said. “Labor is 100,000 employees committed to the same goal.”

For example, the American Airlines flight attendants union, the Association of Professional Flight Attendants, gushed Monday at the official merger announcement. “Christmas has come early for the APFA,” said union President Laura Glading. “It’s been a long, tough slog, but today our hard work has paid off. The flight attendants of the new American are looking forward to building the world’s greatest airline.”

At O’Hare, the new American is expected to be a more formidable competitor to United Airlines, which is the dominant airline in Chicago. Tedeschi would not directly address taking on United at O’Hare, but said, “we will continue to ensure that we are competitive in Chicago. We will offer the network that makes sense for our customers,” he said.